Managing Education Inflation - Part 2
What inflation matters?
While broader inflation or “paper inflation” quoted by government agencies is meant to keep the common man happy and camouflage the rising cost, we need to look at some core inflation and those that affect us personally.
If your spending is high during the child's education period or if there are family health issues that you are addressing then the price cost inflation that you may face can be still higher than the so-called “paper inflation”.
A recent survey done by the Edu-Research Foundation says that the cost of education inflation is rising by 10% (this includes covid period impact). If one had to moderate the figures for the same period we can easily arrive at 8% pa of inflation which is inescapable.
Courtesy: Moneycontrol
Case study: Based on India's education inflation, if you project the cost of education for the next 5, 10, and 15 years we get some astronomical figures that will make you burn the midnight oil and work harder to achieve your goal.
Illustration: 5 lacs of today's cost is estimated to be 8 lakhs after 5 years and can go up to 13 lakhs in the next 10 years. Similarly, a professional degree course that cost 20 lakhs today can go up to 52 lacs in the next 10 years.
Now to save for the future cost?
Now if we safely assume to earn @12% pa through a systematic savings plan for 5,10 and 15 years for varied education costs of 5, 10, and 20 lacs rupees (today’s price), we get the following matrix.
Illustration: For 5 lakhs of today's education cost which is estimated to be 8 lakhs after 5 years, the SIP you need to start today is approx 10K per month. Similarly, if a professional degree costs 20 lacs today, it will cost 52 lakhs in 10 years. This would require a SIP of 23K per month to achieve the goal.
So with 10% "edu-flation" the savings required become humongous. Unless you start saving early, the goals can turn into a mirage. You will not be able to save enough with the moving target as inflation will ride faster than your savings rate.
So be mindful, plan carefully, and stay ahead of inflation to reach your child's education goals. Reach out to us for a more insightful experience and plan your savings to achieve your goals.